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Ceerose Wins One For The Industry

Limiting Liability for Residential Building Claims – Why 10 Years is Long Enough 

Impact

Earlier today, his Honour Justice Stevenson delivered Judgement in Owners Corporation Strata Plan 76841 (Owners) v Ceerose Pty Ltd & Anor [2016] NSWSC 1545.

The decision involved the operation of section 109ZK of the Environmental Planning and Assessment Act 1979 (EPA Act) which provides a 10 year ‘long stop’ following a final occupation certificate within which a building action can be pursued against builders, subcontractors, certifiers and other industry participants.

Blackstone Waterhouse acted for Ceerose in the proceedings.

In refusing leave for the Owners to amend its pleading:

(a)  refusing a new claim for alleged water ingress in the order of $1,000,000 (Water Ingress Claim); and

(b)  limiting claims for alleged fire services and BCA issues to $195,0000 (Fire and BCA Claims),

the decision provides clarity as to the operation of the 10 year long stop – and comfort for all involved in the industry as to how long parties to residential building works can be in the line of fire.

Builders and developers in New South Wales are regularly subjected to poorly formulated claims for alleged defects. Too often, proceedings are commenced after which an Owners Corporation will properly investigate and particularise its claims- as a matter of case management and for the industry, this practice is unsatisfactory.

Background

Ceerose completed residential building works for a 64 apartment development in Waitara, New South Wales, in April 2006. A final occupation certificate was issued on 10 April 2006.

On 1 February 2012, the Owners commenced proceedings in the Consumer Trader and Tenancy Tribunal alleging various defects ‘exceeding $30,000’ claimed in breach of the statutory warranties pursuant to section 18B of the Home Building Act 1989 (HBA).

In February 2014, the proceedings were transferred to the District Court as the Owners’ claims had by that stage been quantified in the sum of $555,000.

At that time the Water Ingress Claim had not been made by the Owners.

Whilst the Fire and BCA Claims had been made by the Owners, they had not been quantified.

Ceerose made the decision not to pursue cross-claims against the certifier and various subcontractors based on the amount claimed by the Owners – including its assumption that the Fire and BCA Claims would not exceed $195,000 (given the proceedings were in the District Court where the monetary limit for such claims is $750,000).

Throughout this period, there were ongoing settlement negotiations between the parties – though successive Court timetables were made for the Owners to finalise their evidence in the proceedings.

The Owners breached numerous Court timetables including on 10 March 2015 and 28 August 2015. Critically, the latter Orders required the Owners’ evidence by 26 February 2016 – prior to the expiry of the 10 Year Long Stop period – which expired on 10 April 2016.

On 7 March 2016, the Owners first identified the Water Ingress Claim – however, the Owners did not provide meaningful exert evidence in support of that claim at that stage. It was not in dispute that this was a separate allegation of defective works to those previously identified in the proceedings.

In May 2016, after the expiry of the 10 Year Long Stop period, the Owners served expert evidence in support of the Water Ingress Claim including as to liability and quantum. Further the Owners provided costings of the Fire and BCA Claims in the sum of approximately $600,000.

The Owners transferred the proceedings to the Supreme Court and pursued an application to amend their pleading to include the Water Ingress Claim and the Fire and BCA Claims.

Ceerose opposed the Owners’ application:

(a)  in respect of the Water Ingress Claim in its entirety; and

(b)  in respect of the Fire and BCA Claims insofar as the claims exceeded $195,000 (being the difference between the then quantified claim of $555,000 and the $750,000 limit of the District Court).

For completeness, we note that the alleged defects in the proceedings are disputed by Ceerose.

Prejudice to Ceerose

Ceerose submitted that permitting the Water Ingress Claim should be disallowed because of the ‘obvious and significant’ prejudice that would be visited on it by reason of the expiry of the 10 Year Long Stop Period.

By way of example, Ceerose served evidence in support of potential cross-claims it could have raised against:

(a)  the certifier, mindful that that claim would be against the company that employed the certifier (as opposed to the certifier as an individual); and

(b)  various subcontractors involved in the relevant works relating to the Water Ingress Claim (based on a direct tort claim),
but for the expiry of the 10 Year Long Stop period.

The Court accepted Ceerose had evidenced that it had lost the opportunity to pursue cross-claims against those parties – meeting the threshold that those claims were more than ‘fanciful’ or ‘theoretical’ – but were ‘viable and realistic’.

In the circumstances, if the Court permitted the Water Ingress Claim brought by the Owners after the expiry of the 10 Year Long Stop period, Ceerose would prejudiced as it would be unable to offset its liability by way of cross-claims against those parties.

With respect to the Fire and BCA Claims, the Court accepted similar arguments as to the prejudice to Ceerose. Critically, the Court accepted the evidence of the Managing Director of Ceerose, Edward Doueihi, that he would have pursued those subcontractors and other parties had the amount of the claim been properly adduced prior to the expiry of the 10 Year Long Stop period.

Out of Time? 

Ceerose argued that the Water Ingress Claim was statute barred as it arose from a cause of action that expired after the end of the seven year period referred to in the then section18E of the HBA.

As noted above, the alleged Water Ingress Claim was different in location and mechanism to claims made in the District Court proceedings.

Albeit in obiter, his Honour did not accept this argument by Ceerose, on the basis that:

(a)  the Owners’ claims, including the Water Ingress Claim, arose from an alleged breach of statutory warranties under the HBA – the various alleged defects were arguably particulars of that breach;

(b)  it was at least arguable that the addition of the Water Ingress Claim in the proceedings was not a new cause of action – such that his Honour would not have refused leave for the Owners to introduce the Water Ingress Claim on this basis – although the amendment date may only have been permitted from the date of the application to amend (i.e. after the expiry of the statutory warranty period.

Precluding a claim at an interlocutory stage is always a challenging argument. It is respectfully submitted that this is an issue which requires legislative amendments to the HBA. It is respectfully submitted that all claims should be properly investigated prior to the expiry of the statutory warranty period and prior to commencement of proceedings. Otherwise, for example, so long as an Owners Corporation commences proceedings in time for a cracked floor, it can raise unrelated claims in later years within the same proceedings – say for the roof – until the expiry of the 10 Year Long Stop period. For builders and the industry – this is unfair. Too often the head contractor is left without the ability to cross-claim due to such delays.

Negligence

For completeness, albeit in obiter, the Court noted that amendments to the Owners’ pleading in respect of negligence would be problematic. In this regard, we refer to our previous case note on the Brookfield decision by the High Court.

Way Forward

The decision in Ceerose is a powerful reminder for Owners and their advisers to ensure that all claims in a proceedings are brought in the correct Court or Tribunal – consistent with various practice notes which require investigations of a claim prior to commencement of litigation.

For builders, certifiers, subcontractors and others involved in residential building works, the case provides certainty as to their exposure following the expiry of the 10 Year Long Stop. This is a win for the industry.

A link to the full judgment is below:

https://www.caselaw.nsw.gov.au/decision/581838a7e4b058596cba0ec5

Blackstone Waterhouse acts for Developers and Builders involved in residential building claims in some of the largest developments in Australia. If you have any queries about this decision, please contact one of our Construction & Major Projects Team.

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